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Federal Reserve policy after the zero lower bound: an indirect inference approach

Author

Listed:
  • Lealand Morin

    (University of Central Florida)

  • Ying Shang

    (Capital University of Economics and Business)

Abstract

Regardless of whether the federal funds target rate has lifted off from the zero lower bound, the historical record of interest rates will be forever marred by the lack of variation in the aftermath of the great recession. This paper employs a method of indirect inference to analyze the interplay between unemployment rates, leading indicators and interest rates in an environment with near-zero interest rates. This method is used to estimate a decision tree for state-dependent Federal Reserve policy to estimate an alternative target rate series similar to those predicted by a shadow rate model.

Suggested Citation

  • Lealand Morin & Ying Shang, 2021. "Federal Reserve policy after the zero lower bound: an indirect inference approach," Empirical Economics, Springer, vol. 60(4), pages 2105-2124, April.
    • Handle: RePEc:spr:empeco:v:60:y:2021:i:4:d:10.1007_s00181-020-01824-4
    DOI: 10.1007/s00181-020-01824-4
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    References listed on IDEAS

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    More about this item

    Keywords

    Federal Reserve; Target rate; Zero lower bound; Classification trees; Indirect inference; Simulated minimum distance;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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